Prologue

The Washington Post, May 11th
2016, article titled “The middle class is shrinking just about
everywhere in America”

“Pew reported in December that a
clear majority of American adults no longer live in the middle class,
a demographic reality shaped by decades of widening inequality,
declining industry and the erosion of financial stability and
family-wage jobs. But while much of the attention has focused on
communities hardest hit by economic declines, the new Pew data, based
on metro-level income data since 2000, show that middle-class
stagnation is a far broader phenomenon.

The share of adults living in
middle-income households has also dwindled in Washington, New York,
San Francisco, Atlanta and Denver. It's fallen in smaller Midwestern
metros where the middle class has long made up an overwhelming
majority of the population. It's withering in coastal tech hubs, in
military towns, in college communities, in Sun Belt cities.

The decline of the American middle
class is "a pervasive local phenomenon," according to Pew,
which analyzed census and American Community Survey data in 229
metros across the country, encompassing about three-quarters of the
U.S. population. In 203 of those metros, the share of adults in
middle-income households fell from 2000 to 2014.”

As I write this the US and world
economies are nine years into an economic recovery. A weak recovery,
but a long one.

The unemployment rate in the United
States recently clocked in at 3.9%.

Full Employment so they say. Many
companies can’t find qualified workers to fill job openings.

I don’t know what's required to be a
Home Health Aide, but to be a Truck Driver you need a CDL driver’s
license.

The jobs going begging are relatively
high skilled jobs. Nothing unusual about that. But, people without
those skills have a harder time of it.

Across the board, real wages (wages
adjusted for inflation) lag.

The chart below is published
by www.pewresearch.com.
It shows inflation-adjusted real wages have improved by $1.49
(in 2014 dollars) over the past 50 years. Pathetic.

The FED’s been trying to create
inflation above 2% and failing.

Some say they’ll succeed beyond their
wildest dreams. The same people (I was one of them a few years ago)
have predicted high inflation for years; ever since the FEDbegan buying bonds on the open market (called
“QE1”).

It turns out a great many of the new
jobs created during the recovery were part-time, low wage jobs.

Below is an excerpt from a post on
www.businessinsider.com.
It was written by Pedro Nicolaci da Costa
on August 8th, 2017. The title is, “More
Americans need a 2nd job to make ends meet — and it's sending a
troubling message about the economy”.

“One trend could be especially
ominous: a spike in the number of Americans taking multiple jobs that
have effectively reversed a decade-long* decline.

"The plight of low-income
workers is underlined by yet another statistic," Sri-Kumar
writes.

The Labor Department reports that
7.6 million workers held multiple jobs last month, up 2% from 7.4
million in July 2016. That's back to highs not seen in 20 years. And
it should not be mistaken as a sign of healthy entrepreneurship.”

Could it be that more Americans need to
work multiple jobs because more Americans can only find part-time
jobs?

If half the population has below
average education, below average skills, or below average
capabilities, shall we protest and agitate for the government to “do
something”? Shall we “vote the bastards out”?

Can we possibly live in Lake Woebegone,
“where all the women are strong, all the men are beautiful, and all
the children are above average”?

I think it was Peanuts who said,
“Wherever I go, there I am.” And it was Jesus who said, “The
poor are with you always.”

Poor is a relative state. Relative to
average. Average is the middle of a population.

What shall we do with the “below
average”? No matter. Half will remain below average regardless of
what we do. What’s more, there will always be a bottom 10% too.

You can be, and probably are, above
average in some things and below average in others. Vive la
difference!

But if you’re below average in
marketable job skills, what then?

What if you had above average job
skills yesterday, but discover your job skills are below average
tomorrow?

I submit, if you depend on the
government you'll regret it. If you expect the government to solve
your problems, you'll be disappointed. If you think the government
will “provide jobs”, you’re mistaken.

On the other hand, never before in
history have you had so much opportunity to become an owner instead
of a worker. A capitalist instead of a laborer.

I don’t mean to suggest you don’t
need to work.

On the contrary, if you start a “side
gig” you may work harder than ever. If you set aside a little money
each month to buy stocks in other people’s companies, you’ll do
without something to make it possible.

But, if you “live like NO ONE else,
then later, you can LIVE like no one else”.

Johnny Can’t
Find a Job

“Hey Johnny, your Grandfather’s
pulling in the driveway and dinner’ll be ready in ten minutes.”

“Okay, thanks, Nana. I’ll have the
game on pause in just a minute.”

After killing three more gargoyles he
pressed pause and the screen went blank. The door opened and a late
60ish man of medium height entered the foyer.

“Hey, Hon. How was your day?” he
said as he walked into the kitchen.

“Same ol, same ol. The manager of the
Manila call center can’t seem to enforce the talk time rules.
Everything’s harder in the Philippines. I wish the company’d kept
the Greensboro center open.”

“Well, I got another interview. It’s
at 3 on Tuesday. In that new office building on Waymore.”

“That’s wonderful Johnny,” his
grandmother said. “Maybe this is the one!”

“Maybe Nana. But, it’s hard to get
excited over an interview. This’ll be the eighth one since I
graduated.”

“Just do your best every chance you
get. You’ll land a good job eventually. Two years is a long time,
but don’t give up.”

“I know Gramps. ‘Put your best foot
forward.’ ‘One step at a time.’ I get it.”

“Changing the subject,” said
Johnny’s grandfather, “I ate lunch at the new McDonalds on Grant.
They’ve got those kiosk things you order from like we saw in France
last year. Remember Di?”

“Yeah. They were confusing.”

“Yup. Here too. It took me five
minutes to order a Big Mac Value Meal. It would’ve taken ten
minutes if I’d stood in line at the register though. They only had
one register open, but they had ten kiosks.”

“I wish you wouldn’t eat at
McDonald's. You know I hate that.”

“Yeah, I know. I just didn’t have
time for anything else today.”

“Say, Gramps, I found the brake pads
for my car online. They were $10 cheaper than Pep Boys, so I ordered
‘em. They should be here Friday. Will you help
me put ‘em on?”

“Sure. Looks like dinner’s ready.
Let’s eat.”

…

This scenario is fiction. But, it could
be happening in any kitchen in any town in the United States.
Perhaps, any in the developed world.

Jobs are outsourced. White collar jobs
as well as blue.

Jobs are replaced with technology.
White collar jobs as well as blue.

Grandparents are working longer,
delaying retirement. Because they keep working, fewer jobs are
available to younger workers.

Even after retiring, grandparents often
take low wage part-time jobs. Jobs that might otherwise go to
entry-level workers.

I make no value judgments here. I’m
one of those over-65 grandparents still holding down a full-time job.

But, I want you to think about how much
harder it is today for young people to find a good job. Not a
part-time job. Not a minimum wage job, but a job you can start a
family on.

It’s not impossible of course.

Much depends on a person’s skills.
But even skilled work is outsourced and threatened by technology.

They say computers with rudimentary
artificial intelligence (AI) will write novels in just a few years.

When technology displaced workers in
the past, people were hurt in the short-term. But new technology
always created more jobs in new and different industries. More jobs
than it displaced.

It may again. I sincerely hope so. But,
and I say this with fear and trembling, this time just might be
different.

Perhaps the difference will be in the
compressed time-frame in which the displacement occurs.

Perhaps, eventually, many more jobs
will be created than destroyed. Just like in the
past.

But, this time the displacement will
occur over a few years, not decades.

It may be much more difficult to create
the new jobs. And, the new jobs will likely require even higher skill
levels.

Technology changes, society adapts, and
the lives of people change. But, we can proactively change to make
our lives better.

You can take steps now to mitigate the
risk you and your family will face. Failing that, the changes are
coming anyway.

You may find them unpleasant.

Fiat Money
Enables Massive Trade Deficits & Job Outsourcing

Gold: Regulator of International Trade

With a few isolated exceptions, the
money of the entire world was gold and silver from before Roman times
until 1944. Most of the exceptions were countries paying for wars
using fiat currency for as long as they could get away with it.

“Fiat” money is money because
someone decrees it is money. Usually the someone is a sovereign
government. It’s backed by the government’s willingness to use
force and by its willingness to accept the fiat money when taxes are
paid.

When money was gold, a country could
only import as much as they could pay for in gold. Most countries,
most of the time, earned gold by exporting their own goods in
turn.

16th and 17th century Spain was an
exception to the rule. Spain mined huge quantities of gold and silver
in its Western Hemisphere colonies. All countries, except Spain, had
to export in order to have gold for imports.

In order to maximize their gold inflows
countries tended to specialize. They focused relatively more
attention on producing things they could sell outside their borders.
On their “comparative advantage”.

And yet they kept their domestic
production capacity for most things.

Employment would shift from
industry to industry as technology improved. But, labor would
remain more or less fully utilized in all of the trading countries.

The Bretton Woods accord created a
new monetary order. It was the first of three major steps that
ended the role of gold in international trade.

Step One: Bretton Woods

“In 1944 in Bretton Woods, New
Hampshire, representatives from 44 nations met to develop a new
international monetary system that came to be known as the Bretton
Woods system.

Conference members had hoped that
this new system would “ensure exchange rate stability, prevent
competitive devaluations, and promote economic growth."[2] It
was not until 1958 that the Bretton Woods system became fully
operational. Countries now settled their international accounts in
dollars that could be converted to gold at a fixed exchange rate of
$35 per ounce, which was redeemable by the U.S. government. Thus, the
United States was committed to backing every dollar overseas with
gold, and other currencies were pegged to the dollar.

For the first years after World War
II, the Bretton Woods system worked well. With the Marshall Plan,
Japan and Europe were rebuilding from the war, and countries outside
the US wanted dollars to spend on American goods—cars, steel,
machinery, etc. Because the U.S. owned over half the world's official
gold reserves—574 million ounces at the end of World War II—the
system appeared secure.[3]

However, from 1950 to 1969, as
Germany and Japan recovered, the US share of the world's economic
output dropped significantly, from 35% to 27%. Furthermore, a
negative balance of payments, growing public debt incurred by the
Vietnam War, and monetary inflation by the Federal Reserve caused the
dollar to become increasingly overvalued in the 1960s.[3]

In France, the Bretton Woods system
was called "America's exorbitant privilege"[4] as it
resulted in an "asymmetric financial system" where non-US
citizens "see themselves supporting American living standards
and subsidizing American multinationals." As American economist
Barry Eichengreen summarized: "It costs only a few cents for the
Bureau of Engraving and Printing to produce a $100 bill, but other
countries had to pony up $100 of actual goods in order to obtain
one".[4] In February 1965 President Charles de Gaulle announced
his intention to exchange its U.S. dollar reserves for gold at the
official exchange rate.[5]”

The Bretton Woods system used US
Dollars as the medium of exchange between international trading
partners. For countries other than the United States, the system
worked just like the international gold standard. Countries exported
to earn US Dollars so they could spend US Dollars on their imports.

The United States took the role of
16th and 17th century Spain, only worse. Instead of mining huge
quantities of gold and silver, the United States created huge
quantities of US Dollars out of nothing.

The US Treasury issued sovereign debt
(bill and bonds) to borrow US Dollars - so far so good. The Federal
Reserve would buy the Treasury debt in whatever quantities the Fed
thought was “good”. This process continues to this day.

The Fed, however, pays for their
purchases by entering a US Dollar value in the accounts of the banks
from which they buy the debt. The accounting entries in the Fed’s
books require only ink, but the money is transferable by the banks
and just as spendable as if it were real.

In the days following World War II,
lots of US Dollars were needed around the world to act as the new
medium of international exchange. The Federal Reserve was obliging
and the mass of US Dollars they created was spent on net imports and
loaned out in “The Marshall Plan”.

Thus, was born chronic trade deficits.
And with them, the gradual movement of jobs out of the United States.

Step Two: Eliminating the “Gold
Cover”

The Vietnam war was raging and it was
expensive.

At the same time, President Lyndon
Johnson wanted to increase spending on his “Great Society” social
welfare agenda.

There was an unfortunate law on the
books. It was unfortunate from President Johnson’s point of view
anyway. It required that every dollar in the money supply must be
backed by gold (the M2 money supply for the economists in the crowd).

The gold was held in US Treasury vaults
valued at $35 per troy ounce, the official exchange rate.

The law required that there
must be enough gold to cover 25% of the total value of the M2 money
supply.

There just wasn’t enough gold to do
this and still pay for the “Great Society” and the Vietnam War.

“On March 19, 1968, President
Johnson signed a bill eliminating the “gold cover” (i.e., the
reserve backing by gold) for Federal Reserve notes. Prior to the
removal of the gold cover, each Federal Reserve Bank had been
required to hold a gold certificate reserve of not less than 25
percent against its Federal Reserve note liability. (The gold
certificates represented gold actually held by the United States
Treasury.) When the gold cover requirement was removed in March of
1968, the ratio of the gold stock of the U.S. to the total Federal
Reserve note liability stood at 25.0084 percent. "